Dealing with Uncertainty: Discounted Cash Flow (DCF) Versus Adjusted Present Value (APV)
Article from: TDM 3 (2007), in Energy Litigation and Arbitration - Expert Perspectives
Both DCF (under the weighted average cost of capital or WACC basis), and APV methodologies are now commonly used in litigation for estimating the pecuniary value of damage in investment disputes. However, the APV and the traditional DCF methods differ in how the relevant cash flows are calculated, and the applicable discount rates. While APV has a great advantage by taking into account all sources of value creation and destruction related to the investment, DCF/WACC leads to more reliable results over time. More importantly, under a DCF scenario uncertainties in estimates of ...